Fed's Musalem leans toward supporting October interest rate cut

Core Viewpoint - The Federal Reserve Bank of St. Louis President Alberto Musalem indicated support for a potential interest rate cut at the upcoming Federal Open Market Committee meeting, while emphasizing caution due to ongoing inflation risks [1][2][4]. Monetary Policy Outlook - Musalem expressed that he could support an additional reduction in the policy rate if labor market risks arise and inflation expectations remain anchored [2]. - The next FOMC meeting is scheduled for October 28-29, where a quarter percentage point cut is anticipated, following September's rate cut, bringing the federal funds target rate to a range of 4% to 4.25% [3]. - The Fed aims to support a weakening job market while maintaining rates sufficiently high to reduce inflation back to the 2% target [3]. Future Rate Cuts - There is an expectation for another rate cut by the end of the year, but Musalem cautioned that it is premature to predict future actions, highlighting the need for careful consideration to avoid overly accommodative monetary policy [4]. - Musalem noted the importance of addressing potential persistent inflation risks stemming from various factors, including tariffs and labor supply issues [4]. Recent Comments and Context - Musalem is the last Fed official to speak before the quiet period ahead of the policy meeting, and recent comments from officials suggest a strong likelihood of lowering short-term borrowing costs despite limited data availability due to the government shutdown [5]. - Fed Governor Christopher Waller also advocated for a 25 basis point reduction at the end of the month, although some officials remain cautious due to the potential inflationary impact of trade tariffs [6].